Understanding ROAS: Moving Beyond the Cost of the Lease
When marketing teams talk to senior management and owners about revenue generated, they are speaking their language.
Effective marketing teams assess the needs of their organization and then choose the best available resources to craft a custom plan. Lately, multifamily marketers have been incorporating Return on Ad Spend. ROAS is the amount of revenue generated by a specific ad or ad campaign vs. the amount of money spent on that ad or campaign.
Senior property management executives and property owners are laser focused on ensuring resident retention and the best possible customer experience at their apartment communities. But, according to Esther Bonardi, vice president, Yardi | REACH by RentCafe, “Their love language is talking about revenue return on advertising spend. ROAS shows how much revenue you receive for every dollar spent, so now we’re moving beyond just simply showing the cost of the lease.”
ROAS is an important consideration when creating multifamily marketing plans. It enables the marketing team to communicate effectively with those at the top of the organization, Bonardi explained.
Calculating ROAS vs Cost Per Lease
Apartment marketers continually balance evergreen digital methods with new techniques to improve strategy and measurement. Traditionally, the multifamily industry has looked at cost per lease, which is determined by dividing the cost of advertising by the number of leases generated. ROAS can enhance communication because it can be expressed as a ratio, percentage or comparative dollar amount. CommerceGarage, an online advertising and marketing agency that develops campaigns across channels such as Facebook, Instagram, Google, Amazon, TikTok, Linkedin and Snapchat, uses the following equation to calculate ROAS: Revenue Generated by Ad / Money Invested in Ad.
ROAS is usually expressed as a multiple of the revenue generated to the invested amount. When explaining ROAS to clients, CommerceGarage uses this example: “Your company spends $10,000 on Facebook ads in a single month, which generates $60,000 in revenue. Using the formula, ROAS is calculated to be 6x, 6:1, 600 percent, or $6 for every $1 spent.”
According to CommerceGarage, marketers can use ROAS as a micro metric that reveals the effectiveness of the ad itself without evaluating the impact it had on overall profit.
While focusing on ROAS can be an important part of multifamily success, marketers should not lose sight of all the other costs associated with doing business.
A Holistic Approach
Not all multifamily companies are hyper focused on ROAS. Kettler, for example, measures three values: performance, ROI and predictive. “It’s still the bucket of ROI, but those reports aren’t necessarily reflecting paid advertising performance,” Daryl E. Smith, senior vice president and chief marketing officer, Kettler, said.
“We use ROI more today than anything else because our investment is divvied up in several segments, and therefore it’s not just advertisements,” said Smith. “When you say advertising, that’s not fully representative in today’s world because we’ve added technology, we’ve added social media and we’ve added reputation management. Each one of those come into various buckets and that’s an opportunity for us to measure performance to get to that return on spend.”
Kettler invests in diverse media channels that serve specific and strategic positioning. In the paid media bucket, it’s SEO (search engine optimization), SCM (search content marketing) and internet listing services (ILS). For most companies that is the most significant cost in terms of paid advertising, Smith noted. For Kettler, it’s roughly 55 percent in SEO/SCM and another approximately 45 percent is spent on ILSs.
“How do we know what that benchmark is for what we’re getting? The first thing we look at is our CPL, which is cost per lease on our prospect acquisition signed,” Smith explained. “First and foremost, we look at what it cost to acquire that prospect, and so we have a baseline cost (BPL). In most companies it can be anywhere from $100 to $700 or $800.”
Within the technology stack, Smith’s team segments the cost of tools used to enable the sales process or enable the customer experience process. “If we look at the prospect acquisition side of things, we use a bot to engage our prospects online for leasing. It acts as a virtual leasing agent. That’s very significant for us because it allows for us to enable the sales experience in a 24/7 format.”
The bot can answer all prospect questions leading up to the application process or scheduling. “We’ve been seeing about 56 percent of our leads overnight have been coming from just that engagement. That’s significant,” added Smith.
Digging into the Data
Bozzuto is paying more attention to ROAS as the years go by and their digital advertising strategy increases. There are many different avenues when it comes to digital ads. “Our approach to return on ad spend has been focused on getting a more in depth understanding of the data,” said Jaclyn Hosking, senior manager, acquisition marketing, Bozzuto. “We build models at both the local and regional level to understand the big picture—but with the caveat that we know every property is unique and we have to take that into account as we formulate our digital and traditional marketing strategies.”
When looking at one marketing channel like paid search, Hosking’s team can see how many clicks led to conversions and then how many of those conversions led to move ins. But this is a very high-level, large picture view. “We know that there are many impactful pieces in between that help get us to that end point,” Hosking said.
For example, Bozzuto marketers know that the advertising done on other channels outside of paid search, such as display or social advertising, contributes to brand awareness as well. But those are not always explicitly clear. According to Hosking, this is a common challenge facing multifamily and some of the limitations of the available tech stacks.
“We don’t have an easy way to view that full customer journey,” explains Hosking. “Our approach moving forward is that we’re investing in an omnichannel methodology. We’re exploring technology that will help us dive in and see those pieces in the middle and their weight in the journey—and to help us understand where we can allocate our client’s dollars best for the greatest returns.”
One of the biggest challenges when firing up marketing efforts and especially in multifamily is that there’s always a shiny new distraction. “New digital platforms and services are appearing it feels like every day—there’s always something new around the corner with big promises,” said Hosking. “Even existing platforms that we work with on a daily basis like Google and Facebook come out with newer ways of reaching our target audiences every year.”
Hosking’s team at Bozzuto performs testing and then the data guides decisions. “Sometimes it makes sense in a larger rollout,” she said. “Sometimes it only makes sense for a small portion of our portfolio, but we always have our client dollars in the back of our mind. So we want to make sure that we’re always putting them to the best use.”
Identify the Revenue
Beyond understanding the cost per lease, ROAS shows the revenue that the advertising brought in. According to Bonardi, being able to communicate that for every dollar spent, $7 was earned is a much more compelling statement to make when you’re talking to a property owner or a senior executive about your marketing strategy.
“In addition, it really helps you see which sources might be providing leads, but not your very best lease,” she added. “In other words, if I have a marketing source and for every dollar spent, I earned $7 or $8 in return compared to another source that for every dollar spent, I earned $5, $6, $7 in return, I can quickly identify my best producing sources in terms of revenue.”
According to Bonardi, until now multifamily marketers haven’t had robust data to really drill into the performance of their advertising campaigns at this level. They’ve long had the ability to determine cost per lease, but not to very quickly identify the revenue that that advertising is actually producing.
“The challenge is that it does require technology to do it in a quick and easy way,” said Bonardi. “You first have to track your lead sources electronically. Then you have to have a system that can parse your invoices and expenses and tie the correct advertising expense back to the correct marketing source.”
Next, you have to be able to identify the revenue on the leases generated by that marketing source. “Once the technology can pull all of that information into one place, there’s an automated calculation that takes the revenue and divides it by the marketing expense in order to deliver the ROAS or return on ad spend,” explained Bonardi. “For every dollar spent, this is how much you earned in return.”